Natural gas falls to seven-week low

Heating fuel supply seen ample; oil futures fall under $46

SAN FRANCISCO (CBS.MW) -- Natural gas futures closed under $7 for the first time in over seven weeks, with the first decline in U.S. inventories since late March not influential enough to spark concerns over winter heating-fuel supplies.

At the same time, crude futures fell as much as 3 percent after OPEC lowered its global oil-demand estimate for this year and next.

December natural gas traded at a low of $6.80 per million British thermal units on the New York Mercantile Exchange before closing at $6.873, down 41 cents, or 5.6 percent, for the session. It's the contract's lowest close since Sept. 27.

"Natural gas is coming into line with reality reflecting historically high inventories for this time of year and a lower than normal withdrawal for this time of year," said James Williams, an energy economist at WTRG Economics.

Earlier, the Energy Department said U.S. natural-gas stocks fell by 6 billion cubic feet for the week ending Nov. 12 -- marking the first decline in stocks since the week ended March 26.

But analysts at Global Insight expected a fall of 18 billion cubic feet. Estimates for the report had ranged from a buildup of 5 billion cubic feet to a drawdown of 42 billion cubic feet, according to Fimat USA, which itself foresaw an increase of 3 billion cubic feet.

Last week's supply fall is much smaller than the draw of 32 billion cubic feet from a year, ago and below the five-year average decline of 15 billion for this time of the year, according to Thorsten Fischer, a senior economist at Economy.com.

That means "storage remains comfortably high to meet demand during the upcoming winter heating season in all but the most extreme circumstances," he said.

Total stocks now stand at 3.321 trillion cubic feet, up 166 billion cubic feet from the year-ago level, and up 275 billion cubic feet from the five-year average, the government data said.

Looking ahead, Williams said prices will likely continue lower over the next week or so.

Still, Economy.com's Fischer emphasized that the outlook for natural gas continues to depend on the weather forecast.

The Federal Energy Commission warned Thursday that regional power markets, especially the populous Northeast, could see a natural-gas supply crunch and dramatically higher electricity prices this winter if severe weather surfaces. See full story.

Oil futures slip

Oil futures touched a low under $46 for the second time this week, pressured by increasing U.S. crude inventories and downward revisions to OPEC's estimates for worldwide demand.

Crude for December delivery closed at $46.22 a barrel on the New York Mercantile Exchange, down 62 cents for the session, but not before trading at a low of $45.65. Prices have now tallied a loss of $3.37 after posting declines in five of the last six sessions.

December unleaded gasoline also fell 1.77 cents to end the day at $1.2383 a gallon. But December heating oil closed up 1.86 cents at $1.43 a gallon.

All in all, the day's action seemed to put the market "more in line with the numbers that came out [Wednesday]," said WTRG's Williams, with crude prices reflecting the increase in crude stocks, and heating oil reflecting the drop in distillate inventories.

The government reported Wednesday its ninth consecutive weekly fall in distillate stocks, down 1 million barrels to a total of 114.6 million barrels for the week ended Nov. 12 -- more than 14 percent below the year-ago level. But the news was offset by the bigger-than-expected 3 million-barrel climb in crude inventories reported by the American Petroleum Institute. See full story.

On Thursday, OPEC "revised down expectations for oil demand growth ... and has also projected a large winter stock build if the group keeps producing at current levels," said John Kilduff, an analyst at Fimat USA, citing the oil cartel's monthly report. See the full report.

In the report, OPEC blamed the lower world oil demand estimate for 2004 on "the lower rate of global economic growth, with China remaining the wild card for next year."

The estimate for world oil demand growth for 2004 now stands at 2.5 million barrels per day, down 120,000 barrels per day, with the average estimated overall demand at 81.74 million barrels per day.

For 2005, OPEC lowered oil demand by 180,000 barrels to 83.3 million barrels per day, so growth is pegged at 1.49 million barrels.

In equities, energy shares traded higher, with the Amex Oil Index
$XOI
leading the gains among the sector trackers. See Energy Stocks.

Cattle futures drop on mad cow scare

Cattle futures at the Chicago Mercantile Exchange plunged to their allowable daily low shortly after the opening Thursday. The U.S. Agriculture Department said a second case of "mad cow" disease may have been found in the United States, but added that further testing is necessary. See full story.

December cattle futures closed at 84.625 cents a pound, down 2.7 cents for the session, after hitting limit down at 84.325 cents "on the threat of a new mad cow finding," said agricultural consultant John W. Kleist.

Cattle futures had been trading at a premium due to persistent and overly muddy conditions in the southwestern United States, reducing supply, Kleist said.

Scott Capinegro, president of Barrington Commodity Brokers in Illinois, said he's not sure when the USDA will make conclusive test results, but some reports indicate it could be made between four to seven days.

In Wednesday's Nymex metals trading, gold futures ended lower for the day, but remained above $440 an ounce following the launch of the first gold-bullion backed exchange-traded fund in New York. See Metals Stocks.

The Reuters/CRB index, a broad measure of commodity futures markets, was down 0.3 percent at 288.03 points.

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